The US 10-year Treasury yield fell Friday morning after hitting a 14-month high in the previous session, but remained above 1.68%.
The benchmark 10-year Treasury note yield fell to 1.689% at 5:20 a.m. ET. The yield on the 30-year government bond fell to 2.422%. The returns move in reverse to the prices.
The 10-year yield was 1.7% on Thursday, a 14-month high, while the 30-year yield spiked above 2.5%. The sharp rise in yields followed comments from the Federal Reserve and its chairman Jerome Powell that the central bank would allow higher inflation.
The Fed was forecasting core inflation of 2.2% in 2021, but forecast a long-term share of around 2%. Powell suggested that the Fed would be ready to let inflation rise if that helped improve the employment picture in the US
Gary Pzegeo, Head of Fixed Income at CIBC Private Wealth, pointed out Thursday that this was part of the Fed’s newer policy framework, which announced last summer that “a more inflation-tolerant Fed intent to achieve full employment was in place before the policy is tightened “.
“The reactions suggest that markets see either longer-term inflation risks or short-term risks from the Fed that deviate from this new approach,” he said.
Mobeen Tahir, assistant director of research at WisdomTree, told CNBC’s Squawk Box Europe on Friday that it was important to put the rise in government bond yields in perspective.
“We’re talking about yields rising from levels so low that a year ago it would have been inconceivable that US Treasury yields could actually be that low, but sadly the stock markets don’t like very rapid yield increases, and so we have seen this nervousness across the board, “he said.
No auctions are planned on Friday.